15 The Real Game of Missing Money As Assistant Secretary for Housing-Federal Housing Commissioner, I was respon- sible for the operations of the Federal Housing Administration (FHA), which was the largest mortgage insurance fund in the world. FHA at that time had annu- al originations of $50-100 billion of mortgage insurance and an outstanding official portfolio of $320 billion of mortgage insurance, mortgages and properties. (CAF note: Today, it is officially $1.1 trillion.) Leading the FHA necessi- tated significant understanding of how homes are built, how mortgages finance thousands of communities throughout America and how investors finance the process by buying securities in pools of mortgages. My responsibilities included the production and management of assisted private housing; management of an organization of 7,000 employees in 80 offices nationwide; and development of network information systems and tools. In addition, I served as advisor to the Secretary of HUD on financial markets regulatory responsibilities, including the RTC Oversight Board, Federal Housing Finance Board, Home Loan Bank Board System, and the mortgage GSEs—Fannie Mae and Freddie Mac. While my experience as Assistant Secretary cleaning up significant mortgage fraud that lost the government billions during the 1980s confirmed that HUD’s finan- cial reputation was deserved, leading the FHA provided invaluable insight into how government management of the economy one neighborhood at a time really harms communities. Hence, access to the “real deal” on real estate and the mort- gage markets was an opportunity. If you want to see the real economy in a place, you absolutely want an accurate map of the financial flows in that system—start- ing with the real estate. Shortly after arriving at HUD in April 1989, I began to learn about the FHA Coinsurance program. Since 1984, HUD/FHA had allowed private mortgage bankers to issue federal credit to guarantee multi-family apartment projects. After issuing $9 billion in mortgage guarantees, HUD/FHA was to lose some- thing approaching 50% of the value of the portfolio—a level of losses hard to explain with mortal logic. When my staff approached me with a proposal to bail out a mortgage company so they could continue to lose money for us, I asked why we should spend money to lose more money in a way that would harm communities, not to mention the transaction they were proposing was illegal. After a long silence during which 30 staff members intently studied their feet, one brave soul explained to me that the mortgage bank was owned and run by a major Republican donor. Shocked, I said. “I am a major Repub- lican donor,” and pointing to my presidential cuff links that were adorning my French cuffs, “I got a pair of cuff links. You get cuff links. You don’t get $400 million of federal credit to throw down the drain.” My staff looked at me like I was so naive and clueless that there was no point in trying to communicate with me—better to let me learn the hard way. Within minutes, a screaming Jack Kemp, furious that I had not provided ille- gal subsidy to keep the mortgage banking company going (despite his orders to stop anything corrupt or illegal), called me on the carpet. The problems were compounded by the opinion of HUD General Counsel Frank Keating, who had